Proposed “patent box” corporation tax reduction regime
There are tax reduction mechanisms in the UK that can help to reduce the tax paid on work relating to research and development
activity. The R&D tax credit system, for example, has been in place for some time. The UK Government is now proposing another
tax reduction system, called the “patent box” tax regime, under which businesses paying corporation tax could claim a reduced
10% tax rate for profits attributable to patented products. The regime is due to enter into force from 1 April 2013 and will apply
to profits arising after that date.
The relevant profits would be those derived worldwide by a UK business from inventions covered by a UK or European patent. The profits may derive from the sale of patents, from the sale of any patented products or spare parts for a patented product, or from damages paid by third parties for infringing the patent rights.
The business must be actively involved in the patent development cycle, rather than a passive recipient of income from holding patents, and must remain actively involved in exploiting the patent. The business must also have performed significant activity to develop the patented invention.
The regime is currently under consultation, with draft legislation proposed for autumn 2011. Further updates will be provided in relation to this proposal as it develops.
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